Taxation on petrol and diesel in India rise threefold, little correlation with crude oil prices: CARE Ratings

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Photo by Ethan Cull on Unsplash

Petrol and diesel prices in India have continued to rise, despite 25-33 on-year percent fall in international crude oil prices, widening the divergence between retail fuel prices in India and crude oil prices across the globe.

Between the centre and the states, the governments are collecting a whopping 204 per cent taxes on the base price of petrol, and 150 percent taxes on the base price of diesel, according to a report by CARE Ratings. Taxes now make up around 64 percent of the retail price of petrol 58 percent of the retail price of diesel, according to the latest available data on price build of petrol and diesel.

This is after the Arvind Kejriwal government recently brought back the taxes on diesel from 30 per cent to 16.75 per cent in Delhi. With the latest cut in diesel prices, the retail price of diesel again fell below the petrol in Delhi. On Tuesday, the price of petrol was Rs 80.43 a litre while that of diesel was Rs 73.6 in the city.

The prices of petrol and diesel are broadly determined by crude oil and foreign exchange rates. However, the retail rates vary from state to state due to local taxes. Over the base price of Rs 25.20 in petrol, excise duty of Rs 33, dealer commission of Rs 3.7, and VAT of Rs 18.6 is added, which takes the retail price to Rs 80.4 a litre. Similarly, over the base price of Rs 28.4 in diesel, excise duty of Rs 31.8, dealer commission of Rs 2.6, and VAT of Rs 10.8 is added, taking the retail price to Rs 73.6 a litre.

While the government significantly increased taxes on fuel after the crude prices fell due to slow global demand and a glut in production, it did not withdraw the taxes after the crude prices rebounded. The fuel tax was used as a tool to marginally offset the revenue losses due to the lockdown.

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